Which is true of how the market sets prices?
(1 point)
Responses
Prices are set by the expected sales.
Prices are set by the expected sales.
Prices are set by how much consumers will pay.
Prices are set by how much consumers will pay.
Prices are set by the size and location of market outlets.
Prices are set by the size and location of market outlets.
Prices are set by doubling the equilibrium price.
The statement that is generally true about how the market sets prices is:
"Prices are set by how much consumers will pay."
In a free market economy, prices are largely determined by the forces of supply and demand. Sellers set prices based on various factors including the cost of production, competition, and the amount consumers are willing to pay for an item. The equilibrium price is reached when the quantity of goods supplied equals the quantity of goods demanded. This equilibrium is not typically set by artificially doubling a price but rather is discovered through the interaction of buyers and sellers in the market.
The other statements provided are either too specific or incorrect interpretations of how market prices are usually determined:
- Prices are not strictly set by expected sales, although expectations about sales can influence production levels and thus, indirectly, prices.
- The size and location of market outlets might affect prices, but they are not the primary determining factor in how prices are set for most goods and services.
- Prices are not set by doubling the equilibrium price; the equilibrium price is where supply equals demand, and it is not a standard practice to simply double this to set a price.